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The Shape of Things to Come

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Authors: Chris Cook & Mahmood Khaghani*

Like everyone else, Iranians observed the extraordinary U.S. oil market events of 20th & 21st April 2020 and wondered what on earth was going on, and what it means for Iran’s future as a major oil producer.  In Tehran, in October 2008 I recall similar astonishment as the global dollar financial system experienced a meltdown from which Iran was safely insulated. 

It has been said that history does not repeat itself, but it does rhyme. Once again, Iran is insulated from market turmoil through US financial and physical oil market sanctions and is ‘on the outside looking in’. Global lockdowns are believed to have cut oil product demand by up to 30m barrels per day and this demand shock is propagating up the supply chain of refineries and oil distribution systems to producers at the well. 

Market shocks
Coronavirus has shocked the physical oil market into cardiac arrest. Fragmented and viciously competitive producer members of oil institutions such as OPEC and “OPEC+” have no viable response. The media stories everywhere of a Saudi/Russia “Price War” reminded me of two bald men fighting over a comb, because there is no physical demand other than for strategic reserves even for cheap oil until product oversupply is cleared and shut down refineries re-open.

Of course, this is not the first oil market cardiac arrest. In 2008, oil prices went into free-fall from a clearly manipulated ‘spike’ to $147/bbl in July 2008 all the way to $35/bbl in December and nothing OPEC did could arrest the fall. The reason was that the 2008 shock was not due to any lack of physical demand to refine oil, but rather to the inability of buyers to finance global oil deliveries as the dollar trade finance banking system froze as banks lost trust in each other.  In order to understand the current market cardiac arrest and how to revive the patient, I shall outline my perspective of US physical and financial energy strategy since 2008. 

Obama: Transition through Gas

The organising principle of US foreign policy has for 100 years been US energy security and independence and President Obama’s smart Transition through Gas energy strategy reflected this. The aim of Transition through Gas was to reduce US reliance on Saudi oil by increasing US oil production and to swing domestic and global energy investment to gas & renewable energy production and energy efficiency (‘Fifth Fuel’). 

Obama was a Wall Street president who took an unconventional approach to funding such colossal energy investment.  His strategy followed that of Henry Kissinger who convinced the Shah of Iran to agree to a 400% increase in oil prices after the 1973 ‘Oil Shock’ which had the effect of making development of Alaska, US Gulf, and North Sea oil economic. So immediately Obama took office in 2009 he acted to re-inflate, support and hold oil prices above $80/barrel for four years while capping politically sensitive US gasoline prices to avoid putting at risk his 2012 re-election. 

This four-year oil boom with prices between $80 & $120/barrel brought a wave of petrodollars from producers flooding into US Federal Reserve Bank (“Fed”) accounts, particularly from Saudi Arabia under an energy security agreement with U.S. made in 1945. To avoid exchange rate problems, the Fed created new petrodollars and swapped them for US Treasury Bills in a neutral asset swap operation termed Quantitative Easing (“QE”). However, the economic myth propagated by the Fed and sustained by uncritical global media was that this neutral financial asset swap could in some magical way act as a “stimulus” for the US economy when the true reason was to quietly accommodate oil producer Petrodollars. 

In order for oil producers to support high oil prices, they must be able to fund stocks of excess oil held off the market and be able to access bank finance for the flow of oil payments. In order to achieve this, Wall Street used new investment instruments: firstly ‘passive’ oil funds investing in oil market futures contracts, and secondly, secret Enron-style oil prepay funding.  

In this way, Wall Street and North Sea oil producers were able to support the global benchmark price set by ICE Brent/BFOE crude oil contracts, and Saudi Arabia’s BWAVE pricing formula based on it. From 2001 to date the North Sea oil market tail has wagged the global oil market dog.

So the vast inflows of petrodollars during President Obama’s first term in office enabled US banks to fund shale oil & gas and renewable energy projects, while historically high US fuel prices encouraged energy-efficient vehicles. By 2014 the US had transitioned from natural gas deficit to surplus; US shale oil production had increased by some 5m bpd, while fuel consumption had fallen by 2m bpd. Similar trends elsewhere of increasing supply and falling consumption saw structural global oil deficit quietly transform into a surplus.

In late 2011 in Tehran, with oil prices well over $100/bbl, I forecast to general disbelief that when the Fed ended QE, the oil price would collapse to $45/$50 bbl. This is exactly what happened when the US finally turned off the QE dollar hosepipe in 2014 while opening a massive military base in gas-rich Qatar. The US also commenced overtures to Iran bearing in mind both the greatest global gas reserves and immense development opportunities for low-cost oil long coveted by US oil majors.

In late 2014, Saudi Arabia awoke from a petrodollar coma to see their power over the US vanish along with their energy security. As a result, Saudi Arabia redirected oil proceeds to the Euro, where a main aim of European Central Bank policy since inception has been to back Euro currency with no intrinsic value with lending based on objective utility of oil and gas energy. So as with Fed dollar QE, the true reason for Euro QE in March 2015 was not stimulus but was simply to accommodate purchases of € securities. 

However, the unexpected election in November 2016 of President Trump changed everything.

Trump and energy dominance

Perhaps the most important of President Trump’s motivations, due to an intense personal animosity, is to erase Obama’s political legacy and in particular his energy strategy.  But it was a surprise to many observers that Gary Cohn (ex-Goldman Sachs and a Democrat) as Director of the US Economic Council and Rex Tillerson (ex-Exxon CEO) as US Secretary of State were willing and able to serve the Trump administration

Cohn architected and co-founded in 2001 what became the globally dominant Intercontinental Exchange (ICE) through which Wall Street came to dominate and financialise oil markets, while Tillerson was the most powerful US oil executive by far. Together they devised and implemented the US Energy Dominance strategy which was announced by President Trump on 29th June 2017.

As the name suggests, President Trump’s ‘America First’ doctrine when applied to oil and gas markets aimed to massively increase US production in order to dominate global markets with what officials have termed “Molecules of US Freedom” and so take back control of global oil market pricing via oil & gas exports.

So on 1st July 2017 after 16 years of pricing oil using the ICE BWAVE formula, Saudi Arabia switched to prices generated by the Platts reporting service for cargoes of Brent/BFOE oil. For six months huge passive fund investment poured into global oil futures contracts, thereby re-inflating the price. Three months later at the end of March 2018 and nine months to the day after the strategy commenced, Cohn and Tillerson simultaneously left the Trump administration, leaving the strategy to be rolled out over the next two years.

So for the next 18 months, the Fed steadily reduced its balance sheet by selling Treasury Bills to release dollars. Within six months in September 2018, the ECB ended Euro QE, and Fed Treasury Bill sales continued until September 2019. 

U.S. and the oil standard

Whoever was responsible for the Abqaiq attack on Saturday, 14th September 2019, the resulting spike in oil and product prices required massive amounts of dollar funding to cover losses on derivative contracts. So Monday 16th September saw an unprecedented ‘spike’ in the sale and repurchase (“Repo”) of US Treasury Bills through which the Fed supplies dollar liquidity to four major US clearing banks. However, this massive Repo spike was only the beginning: from then on, the programme of exchanging dollars for short term Treasury Bills involving only these four banks which became known as ‘NotQE’ continued at a rapid rate.

Meanwhile, through the second half of 2019, oil prices were otherwise stable in a range between $55 and $60/barrel. The more the price exceeded $60/bbl the more shale producers sold oil forward, which enabled them to borrow from banks to finance drilling. When prices fell below $55/barrel, financial buyers appeared.
As a result, the US petrodollar funding system has quietly been completely reconfigured, as Saudi PetroEuros returned to U.S. to be swapped for short term Treasury Bill petrodollar holdings. Where petrodollars indirectly funded shale oil producers through bank lending, shale oil production will now be funded via the same three-way prepay mechanism used by Enron for a decade to secretly defraud their investors and creditors. The difference now is that where Enron’s third-party funders were two of the Big Four private banks, now it is the Fed itself which is the third party funder.

Meanwhile, the waves of debt advanced to the US shale oil industry are beginning to come due and the Big Four banks are all preparing to foreclose on these debts and take ownership of shale oil assets. These banks plan to use production sharing LLC ‘capital partnerships’ with operating partners while oil majors such as Exxon appear also to be aiming to consolidate distressed shale oil assets using similar funding.

So to cut a long story short, the planned outcome of the US Energy Dominance financial energy strategy, was to support and loosely peg oil prices by controlling the benchmark price around $55 to $60/barrel.  By pegging the dollar to an “Oil Standard” in this way prepay funding of US oil reserves has essentially monetised US oil 

Enter the dragon

Producers have controlled the oil market for so long they believe this to be their God-given right, forgetting that buyers are also capable of asserting market power. For years China’s energy strategy has been to build and fill enormous oil storage capacity, now in excess of 1.2 billion barrels, while a fleet of new and efficient oil refineries has been built with capacity well in excess of China’s product needs, and aimed at exports. 

As Iran is painfully aware, China’s ability to ignore US sanctions means that they have become oil buyer of last resort at distressed prices, and may, therefore, dump cheap oil products into the market with which other refiners cannot compete. China has also discussed cooperation with other major oil buyers, particularly India. Other countries in oil deficit, notably EU nations, also have an incentive to join a cooperative ‘buyer’s club’.

So in my view, China has been preparing for years to assert ‘buy-side’ consumer oil market pricing power and the unprecedented demand shock propagating from China has created the perfect opportunity. When the oil market recovers from this cardiac arrest which broke the US/Saudi oil peg I believe that China can and will assert buy-side market power, probably in loose cooperation with other major consumers who see no reason to continue to transfer up to an additional $30/barrel to producers.

Oil wars

The story of a so-called oil war between Saudi Arabia and Russia aimed at killing off US shale oil production is a myth: the true struggle for market share appears to be an attempt by a US/Saudi Arabia partnership to out-compete Russian oil sales to Europe and elsewhere. Whatever the geopolitical truth of it, the collapse of product demand far in excess of any feasible voluntary oil production cuts makes talk of market share redundant, when there simply is no market to share.

So once enough refineries shut down to allow surplus oil on the market to begin to clear and a physical market price to re-emerge we will see two struggles begin. Firstly the struggle between buyers and sellers, and when, as I expect, the buyers win, the continuing struggle for oil market share between producers.

In my view, the crazy spike in prices of the US WTI oil futures benchmark price to a negative price of $37/bbl represents a historic point of failure from which the contract will not recover. It seems to me there is now an urgent need for a temporary resolution of the broken oil and products markets while a transition to new and sustainable global energy and financial markets get underway.

On the outside looking in
 
As the great author, Arthur Conan Doyle wrote: “Once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth” 

Iran now has no options other than to pursue improbable and unorthodox market solutions in order to resolve an impossible economic situation, by a two-stage process of resolution and transition. The resolution step is to re-purpose existing structures and infrastructure with no change in the law. This then provides the basis for proof of concept of smart market and energy fintech innovations which enable transition to sustainable low carbon and low cost physical and financial solutions.

Resolution

My colleagues and I have long promoted 21st C Iranian physical and financial markets in oil products, but these have always been resisted by vested interests.  However, global collapse of product prices has now seen Iranian product prices converge with neighbouring countries, thereby neutralising certain vested interests. Our proposal for an interim resolution of Iran’s economy builds upon existing subsidy and rationing policy and technology for oil products.

Firstly, our innovation is to simply for the government to issue an “Energy Dividend” of vouchers or credits, to Iran’s population, each of which will be accepted in payment for products.

Because the Euro 5 standard for gasoline is used throughout Eurasia, we propose that each “Energy Credit Obligation” (ECO) will be returnable in payment for 1 litre of Euro 5 gasoline. Such standard ECOs will also be accepted by refiners and distributors, in payment for other fuels at a discount or premium to Euro 5 gasoline.

Refineries who issue such ECOs would no longer buy crude oil in exchange for conventional currency such as riyals or dollars since to do so exposes them to the risk of oil price fluctuations. Instead, refiners will enter into production sharing partnership agreements or oil/product swaps with oil suppliers in exchange for a percentage entitlement to the flow of ECOs.

So the ECO represents prepayment backed by the Iranian government and energy complex for the eternal intrinsic use value of energy, and in uncertain times many investors seek such assets. In order to build trust in the ECO, issuance must be transparent to everyone, and I addition must be overseen by professional service providers with a stake in the outcome who manage issuance and redemption of ECOs against use.

Transition

The ECO represents a fixed point upon which 21st C smart energy markets and economy may be introduced by Iran’s greatest resource – one of the greatest global pools of intellectual capacity – to collaborate in solving humanity’s greatest challenges.

*Mahmood Khaghani, former director-general of the Caspian Sea and Central Asia Department at Iran’s Ministry of Petroleum. He is now an advisor to IRIEMP- University of Tehran & Education and Research Institute -ICCIMA

From our partner Tehran Times

Energy

The greening of China’s industrial strategy

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The prominence of China’s role in the global green shift currently underway may seem a paradox. Whilst it has been despoiling its own environment and that of some other countries in pursuit of the same fossil-fuelled industrialisation strategy that made the West wealthy, China has also emerged as a renewables superpower, dwarfing other countries in its building of renewable capacity and the speed of its transition to innovations such as electric cars, trucks and buses. China is betting big on renewables and on a circular economy. Indeed, the success of its development depends on this wager succeeding. Scale is the key to understanding its strategy: China’s industrialisation is a process taking place at a scale without historical precedent.

Like all previous industrial powers, China initially depended on fossil fuels for its industrialisation. It has paid a terrible price for this – far more than earlier industrialisers, including its predecessors in East Asia. As China became the largest manufacturing power on the planet, it created a huge domestic market that provided a first port of entry to global industry for its manufacturing and service firms, on a scale that exceeded its East Asian predecessors. China was able to utilise its domestic banking system to channel flows of savings to firms as they sought to catch up with international rivals. In these ways, the strategy has followed earlier patterns of industrialisation, with emphasis on manufacturing, state guidance and state-derived finance, while exhibiting some differences in emphasis, such as the use of its own domestic market, its own finance and foreign reserves, and a combination of national and provincial state involvement and guidance.

But a feature of China’s industrialisation that is decidedly unique is its strategy for supplying the energy needed for its industrialisation efforts. Alongside China’s “black” industrialisation strategy, powered by fossil fuels, has been a “green” strategy, focused on renewables and circulated resources – again, at unprecedented scale. China has been greening its energy and resources system at a furious pace, while maintaining a dependence on fossil fuels that is steadily diminishing. The chart below reveals how China has been ramping up its green electric power system to become the largest green electricity producer on the planet. The shift in electric power generation towards water, wind and sun as sources is clear – a 15% green shift in capacity in just the past decade, an enormous change for such a huge technoeconomic system.

What is driving this green trend?

If China were to proceed with the typical industrialisation strategy – based on fossil fuels and the plunder of raw materials – then it would face insuperable problems. These would not just be problems of shortages of resources and immediate environmental problems, but most centrally problems to do with the geopolitical limits to a fossil-fuelled strategy relying on virgin materials. To put it bluntly, China would face entanglements in oil wars and resource wars if it were to pursue such a strategy at the scale of industrialisation it is managing – not to mention the burden on its balance of payments as it sought to raise its imports of these fossil fuels. It would mean a horrendous 21st century – for China and for everyone else.
 

As interpreted by China, a green growth strategy is not so much about a return to nature, but instead involves a clear reliance on manufacturing of energy, as well as greening of food supply through increased reliance on enclosed urban agriculture. The advantage for China of renewables technologies is that they can be manufactured domestically and enjoy economies of scale and cost reductions associated with the manufacturing learning curve.

It is not lost on China that these are all potentially the mainstream energy, transport and food production industries of the future, where the country’s state agencies clearly anticipate it will emerge as world leader, at the technological cutting edge. While the United States under President Trump battles to maintain the supremacy of its fossil fuel industries, China is forging ahead to dismantle its coal, oil and gas dependence and build strong renewables and resource recirculation industries based on its manufacturing strengths. This is what may be interpreted most accurately as China’s green growth industrialisation strategy.

No alternative

When one looks at the scale involved in its industrialisation, China really has no alternative to a green strategy. And in the typical no-nonsense approach of the Chinese government, their leadership has adopted it with determination and ambition. As China adopts this green shift strategy, so it drives down costs for itself and for all – and makes such a strategy more accessible to other industrialising countries like India, Brazil or nations in Africa. And so the green shift that is initiated by China becomes a global green shift – even if it is complicated by further investments by Chinese state-owned enterprises in coal power as part of the Belt and Road Initiative. This in turn opens opportunities for companies and countries nimble enough to take advantage of them – including companies based in the US, the EU or Japan.

As China’s economy emerges from the Covid-19 pandemic, it can be expected to focus even more on this green growth strategy. After all, this is where China holds decisive competitive advantages in terms of manufactured exports and energy as well as resources security. The 14th Five Year Plan can be expected to place primary emphasis on both features of China’s industrialisation in the 2020s – the greening of its energy, transport and industrial systems, and the growing levels of resource recirculation (e.g. “urban mining” of electronics materials) as it pursues circular economy strategic initiatives.

At the time of writing, oil prices have hit a record low (even moving into negative territory) and so no doubt some tactical purchases are being made by China. But it would be a serious error to regard these purchases as deflecting China from its long-term strategy of green growth, and the energy and resource security it brings with it.

From our partner chinadialogue

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The oil market crisis

Giancarlo Elia Valori

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The Covid-19 pandemic triggered a crisis or rather a real collapse in the oil barrel price, down from approximately sixty US dollars just before the coronavirus spread to the current twenty dollars – with downward peaks before the end of April 2020, still significantly lower than the current twenty dollar average.

The origin of the price collapse is obvious, i.e. the closure of the purchasing countries’ economies and the major crisis in the car market, in particular, with the lockdown of all public and private mobility.

 Moreover, for many producing countries, twenty dollars a barrel is a price well below break-even points and sometimes below the mere production cost.

Fifty-sixty US dollars a barrel is less than the cost of oil extraction in the Arctic, for example, and less than what is necessary to break even European and Brazilian biofuel production, but also US and Canadian shale oil. In Great Britain the oil barrel cost is 52.50 US dollars, while in Saudi Arabia the cost for producing an oil barrel is still 10 US dollars approximately.

Saudi Arabia, however, also needs much higher prices, at least from eighty US dollars per barrel upwards, to rebalance its public budget and seriously invest in production diversification, not to even mention the social stability of this country and, in other ways, that of the Russian Federation.

 World demand has therefore plummeted, with a reduction of 29 million barrels per day from the over 100 ones a year ago.

This also means that storage capacity has reached the saturation point, with countries selling directly at sea, with a view to avoiding the high and unpredictable costs of overproduction and, by now, even at direct agreement low prices.

 According to some specialized analysts, oil production will fall by at least 9.3 million barrels per year, until the time in which the coronavirus epidemic stops significantly. But this is a very optimistic forecast.

As is already seen, the most predictable effects of collapse in oil prices will most likely be the bankruptcy of small and medium-sized oil companies in the United States and Canada, where the banks had also strongly supported these companies with debt.

 The economic, financial and social repercussions on these countries’ productive systems will be immediate and hard to manage.

 Some extraction of US and Canadian “zombie” companies has continued, in view of cashing immediate liquidity, but, obviously, this cannot last very long.

It is hard to speak about public support for oil companies, considering their international corporate structure and, above all, because of the large mass of liquidity that would be greatly needed and would inevitably be drawn from other budget items, which are more socially necessary and with a strong psychological and hence electoral impact.

Nevertheless, the whole economy of producing and of typically consuming countries – which, for various wrong or short-term choices, have never established their own “OPEC” – will be severely affected by the vertical fall in oil prices, even though the US IAEA supported and legitimized the cut in production last April. The initial sign of an inevitable agreement between producers and consumers in the future, also at financial and investment level.

Furthermore, some producing countries have considerable financial funds to stand up to the fall in the oil barrel price, probably even until the end of the pandemic, but this is certainly not the case with other producers.

 Saudi Arabia, the UAEs and Kuwait can last relatively long, albeit stopping their plans for economic expansion and diversification in the short term. Just think here of the Saudi Vision 2030 plan.

 Iraq, Iran and Venezuela – with Iraq which is currently one of Italy’s largest exporters – will certainly have to withstand periods of extreme social crisis and even political legitimacy.

 In Africa, Nigeria and Libya will face further political and social crises of unpredictable severity – in addition to internal wars by proxy, as in Libya.

 China itself, the current largest oil buyer, has stopped as many as 10 oil shipments by sea from Saudi Arabia.

The tax break-even point reveals the complex internal dynamics and trends of manufacturers: Saudi Arabia is at 91 US dollars; Oman at 82; Abu Dhabi at 61; Qatar at 65; Bahrain at 95. Iraq is currently at 60 US dollars, but it should be noted that Iran is now at 195 US dollars, Algeria at 109 and Libya at 100- to the extent to which Libyan oil exports can work after General Haftar’s closure of oil wells- while Nigeria is at 144 US dollars and Angola has only acost + tax per barrel of 55 US dollars.

Currently Russia has a strong need for a tax per barrel of at least 42 US dollars, while Mexico 49 and Kazakhstan 58 US dollars.

 In order to survive, the US, Canadian and Norwegian oil companies need an oil barrel cost of 48, 60 and only 27 US dollars, respectively, to simply break even.

 Russia will probably be able to survive(“for ten years”, as it says, but probably exaggerating) a pandemic crisis, which has also hit its own population hard, by using its Strategic Fund, which is currently worth 124 billion US dollars.

Every year of crisis, however, is likely to cost Russia 40-50 billion US dollars.

 Not to mention jobs, which could be reduced by over a million in Russia.

 Saudi Arabia, too, is very liquid, and predicts a loss of over 45 billion US dollars at the end of the pandemic.

 If Saudi Arabia makes another deal with Russia and manages to raise the oil barrel price to 40 US dollars, it is supposed to reduce losses to 40 billion US dollars annually.

Iraq, the second largest Middle Eastern exporter, covers 90% of its public spending with oil revenues.

 In Iran and Iraq, the closing down of private companies has caused the almost total closure of oil production since last March.

Moreover, Iraq has no sovereign funds. Mexico has already started to implement “austerity” measures, although it has stated there will be no closures or staff cuts in the public sector.

 The Nigerian GDP will certainly go below zero. Nigeria was the economy recording the greatest development rate in Africa, but since May it has had 50 million barrels unsold.

 The unemployment rate will rise from 25% to well over 25 million people, but Nigeria has a very small Sovereign Fund that owns 2 billion US dollars.

There are very large differences among producing countries. There are countries with a financial power potentially able to further stand up to the collapse of oil prices and countries with an internal social and economic situation on the verge of collapse, as well as other economies floundering in a very severe crisis.

Just think of the Lebanon, which had already defaulted before the fall in oil prices. Obviously neither Saudi Arabia nor Iran will help it any longer.

 This means that the producing countries with a more “liquid” financial situation can start buying oil assets – not at a very low cost – from their fellow OPEC competitors or even outside that OPEC protectionist framework, while the countries without long or short liquidity, will quickly be economically colonized by the strongest ones and this would make their economic autonomy irrelevant. Especially if they are, like Iraq, truly oil dependent countries.

 The GDP for the current year, however, is expected to slightly decrease in Kuwait (-1%) while Algeria and Iraq are expected to immediately fall to a -5%, which could be fatal not only for their economy but also for their social stability.

 Libya, just to remind us of a key country for our security, as well as for oil, will record an expected fall in GDP of almost -58%. 

 It is easy to understand what will happen and how much impact it will have on Italy.

  The International Monetary Fund has also predicted a quick rebound in prices beyond the oil break-even point for the whole oil area between Africa and the Middle East as early as 2021, but the forecast seems to be completely unfounded, given the multi-year length of the buyers’ crisis and hence the inevitable fall in producers’ prices.

 Even if the coronavirus crisis were to end in a month, which is highly unlikely, the economic outlook would not change radically even for 2021.

 The fact is that, according to all the most reliable projections, the GDP of non-producing countries will fall even faster than that of oil-producing countries.

 Certainly there is the temporary relief and redress of public accounts in the Middle East and North Africa (MENA) non-producing countries, which is estimated at around 3-4% of their GDP, but these are countries like Morocco and Jordan having little economic weight in their respective geo-economic regions.

 There is also another factor to consider: the producing countries’ crisis adds to the much longer-standing crisis in the African countries exporting not oil, but food products.

I am here referring to Jordan, Mauritania and Morocco – which is still a leading country in the world production of citrus fruits, with companies cooperating with the United States – and to the wine-producing Tunisia.

 The FAO sugar index has fallen to -14.6% – more than ever over the last 13 years.

 The FAO index for vegetable oil is -5.2%. The dairy prices are currently falling by 3.6% and meat prices by 2.7%. Wheat prices, however, are expected to remain stable, although storage, and hence the future final cost, will increase from now on.

Certainly the “rich” producing countries, i.e. those with greater liquidity reserves, have already begun to inject liquidity and implement tax rebates.

 Saudi Arabia has tripled VAT from 5 to 15%. It has also issued 7 billion US dollars of public debt securities that will fall due in 5, 10 and 40 years respectively, with a 5% planned restriction of public spending, and as many as 13.3 billion US dollars in support of small and medium-sized enterprises, with the nationalisation of 14,000 jobs in the most technologically advanced sectors.

Just to give an example of the most capitalized oil exporting country.

 It is not even said that soon the Saudi and Emirates’ sovereign funds do not want to acquire – at selling-off prices – even the U.S. and Canadian shale oil industries undergoing an evident crisis.

Both in countries in crisis and in those with greater financial resources investment will be well diversified in the health or in the large infrastructure sectors. Investment will be made also in research and in the expansion of the oil sector, which will certainly start working again – as and probably more than before – at the end of the pandemic.

 There will probably be an economic and financial rebalancing between the United States and Saudi Arabia, which have similar interests, both in the purchase of shale oil companies in crisis, obviously, but also in a closer direct financial relationship, considering that Saudi Arabia still holds 177 billion US dollars of North American public debt securities.

 A record amount which could increase rapidly.

 Obviously, in the darkest phase of the crisis, the objective of the financially sound OPEC countries will be diversification from oil to more technologically advanced and expanding sectors, such as health and pharmacology, particularly abroad, but again without neglecting the oil sector.

 While maintaining the same – or almost the same – current investment in the oil sector, which cannot but take off again in the short to long term.

 For the other less financially sound countries, it will be about implementing great political reforms, which may at least stabilize the countries floundering in severe economic crisis, or having their oil assets quickly sold by the richest Arab countries, which will thus have a much greater power of pressure vis-à-vis consumer countries when the oil recovery starts.

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The Next Forty-Seven Years of Oil war

M.Abaid Manj

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We know the meaning of this compound word before the fluctuations of petroleum products. Peter means rock oleum oil. The first reason to address rock oil was (Dr Natura Fossilium). The author of this article is a German mineralogist.  It was George Beaver who published this creative work in 1546, naming it Agri-Cola. In modern times, it is also known as crude oil. A mixture of hydrogen and carbon in naturally occurring molecules.  Other organic compounds (nitrogen, oxygen, sulfur) include natural metals (iron, nickel, copper and vanadium).The composition and quantity are as follows: Carbon contains 83 to 87 per cent, hydrogen 10 to 14 per cent, nitrogen 0.1 to 3 per cent, oxygen 0.1 to 1.5 per cent, sulfur 0.5 to 6 per cent and metals less than 1000 ppm. 

Crude oil contains four types of hydrocarbons (alkynes and cycloalcins). Paraffin averages 30 per cent while its content is 15 to 65 per cent, nephrons averages 49 per cent and 30 to 60 per cent, aromatics averages 15 per cent and 3 per cent.  30%, asphaltics average 6% while the rest consists of the same.  In this energy race, the United States managed to run the fastest, capturing Iraq’s purchase of 500 metric tons of uranium from Canada in the blink of an eye. This uranium proved to be a golden hen for the United States.  Eggs were supplied to India by the United States with multiple interest rates.

South Asian countries were thrown into a new marathon race, which ignited the Great War in many countries. Russia and the United States have torn these countries apart for three decades. In the field of strong dollars and investment, the Allies have tested a new weapon that seemed to be a relatively loss-making deal but a double-edged sword. And the most mineral-rich land in the eyes of the United States was shining brightly after the collapse of the Soviet Union. In order to gain ground power, the United States had a golden opportunity to hollow out the Soviet Union internally.  Professor Richard Heinberg of California, Santa Rosa, has created a CIA report that the United States has played with oil prices to subdue the Russian economy.

One author predicted that in the future, Russia would become a buyer of oil from OPEC, not a seller-policy.  Implementation would leave Russia trapped in the international economic system. In the 1980s, the United States pushed Saudi Arabia into a war in which every effort was made to make oil production available on the cheap market. The United States was completely successful. During this period, the United States considered weapons as the source of all its efforts. Russia wanted to compete in this race by selling oil at exorbitant prices, but was unsuccessful and lost. The United States took Saudi Arabia into the alliance because it owned the largest oil reserves in the world.  OPEC countries (1189.80 billion barrels) have 79.4% reserve’s and non-OPEC countries (308.18 billion barrels) have reserves of 20.6%.

 At the end of 2018, Saudi Arabia owned 22.4 percent of them.  Venezuela tops the list with 25.5 (bb) percent. Overall, OPEC countries added 186.2 billion barrels of proven oil to the market from 2009 to 2018, while non-OPEC countries accounted for only 24.6 billion barrels.  Non-OPEC countries’ reserves in production stood at 152.1 billion barrels. On the other hand, OPEC could only touch the graph of 113.8 billion barrels. At the end of 2018, OPEC released the names of the largest exporters of crude oil in its annual report.  Venezuela (302.81 BB) first, Saudi Arabia (267.03 BB) second, Iran (155.60 BB), Iraq (145.02 BB), Kuwait (101.50 BB), UAC (97.80 BB), Libya (48.36) BB), Nigeria (36.9) 7 BB), Algeria (12.20 BB), Ecuador (8.27 BB), Angola (8.16 BB), Congo (2.98 BB), Gabon (2.00 BB) and finally Equatorial Guinea(1.10 BB).  In 2018, the world demanded 98.72 million barrels of oil per day.Non-OECD oil consumption has been higher in terms of cost.

A year is divided into four parts. In 2017, the United States spent the most oil in the world in 2Q and 4Q, but in 2018 its spending rate is 1Q, 3Q and 4Q. The United States ranks first in terms of oil consumption at 19687287 barrels per day, which is 934.3 gallons per capita per year.  Singapore (3679.5 gallons per capita) consumes the most oil per gallon, followed by Saudi Arabia (1560.2 gallons per capita) annually. US oil production is 14.83 billions barrels per year. Saudi Arabia second with 12.4 billion barrels per year, Russia third with 11.26 billion barrels per annum, China fourth with 4.99 billion barrels per year, Canada 4.59 billion barrels per year.  Iraq ranks fifth with 6.44 billion barrels a year.

In 2016, the world’s proven oil reserves were 1.65 trillion barrels and oil consumption was 35.44 billion barrels per year and 97.1 million barrels per day.  According to this calculation, oil reserves will be available for 47 years. The population of 2016 was based on 7 billion 464 million 22 thousand 49 people. Global oil consumption is 5 barrels (199 gallons) per person per year was. But today, on May 7, 2020, the world’s population is 7 billion 78 hundred million 28 million 4 thousand 8 hundred 41 and oil reserves are 15 trillion 9 billion 57 hundred million 16 million 29 thousand 3 hundred 2 barrels.  The person will come. We will be able to use the remaining amount of oil for 47 years, 237 days, 9 hours and 36 minutes. The rapid depletion of oil reserves speaks volumes about human difficulties in the future.  Oil is considered to be the biggest source of human needs in the world. From human transportation to the fertility of the land, the need for oil has made man needy. Expectations of hot wars, not cold wars in the future. There will be a reduction in the need to grow more than food.

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